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FCC issues NPRM on the E-rate program

Executive Summary: On July 23, 2013, the FCC released a Notice of Proposed Rulemaking (“NPRM”) seeking comment on a broad range of issues that focus on three main goals: affordable access to broadband that supports digital learning, the cost-effectiveness of E-rate funds and streamlining the administration of the E-rate program.Comments are due September 16, 2013 and Reply Comments are due October 16, 2013.

The FCC has initiated a comprehensive review of the E-rate program through a NPRM issued on July 23, 2013. The review comes on the heels of an initiative launched by President Obama called ConnectED, which aims to connect schools and libraries serving 99 percent of students to high-capacity broadband and to provide high-capacity wireless connectivity to schools and libraries within the next five years. In announcing the initiative President Obama called on the Commission to revise the E-rate program to meet those goals. The NPRM focuses on three main goals for the E-rate program:

Ensuring that schools and libraries have affordable access to 21st Century broadband that supports digital learning;

Maximizing the cost-effectiveness of E-rate funds; and

Streamlining the administration of the E-rate program.

The NPRM poses an extensive number and variety of questions seeking comment on the goals themselves, ways to prioritize and track achievement of the three goals, and ways to implement and accomplish them. The following summarizes many of the questions raised by the Commission related to each of the three goals.

Affordable Access to Broadband Support

The first goal set out by the Commission is to ensure that schools and libraries have affordable access to 21st Century broadband that supports digital learning. The Commission understands this goal to have two elements. The first is to ensure that all schools and libraries have access to high-capacity broadband connectivity to enable the support necessary for digital learning. The second element is to ensure that schools and libraries are able to afford those broadband services.

As a threshold question, the Commission seeks comment on whether the goal for affordable access should be extended beyond broadband services to voice services, as well, and what those goals for voice services or for both voice and broadband services as a whole would look like. The Commission also seeks comment on whether and/or how to measure the progress of achieving access to broadband and proposes the suggestion of benchmarking the performance of schools against specific targets. With regard to specifying performance targets, the Commission seeks comment on the precise target levels, e.g. whether the target of ensuring that schools have 100 Mbps per 1,000 users increasing to 1 Gbps per 1,000 users is appropriate for all schools or whether other levels should be used. The Commission further seeks comment on how capacity need changes for schools with 100, 500 or 1,000 students and the feasibility of targets for schools and libraries located in remote geographical areas. The Commission also proposes modifications to the Form 471 application, which could be used as a means to collect more detailed information on connection speeds and technologies used for broadband services by schools and libraries.

The Commission also seeks comment on a variety of ways to realize affordable access to broadband support, such as: concentrating E-rate funds on supporting high-capacity broadband for schools and libraries; ensuring equal access to E-rate funding; lowering new build costs; and exploring alternative funding sources. Specifically, the NPRM seeks comment on changes to Priority One funding to add and/or limit funding for new build costs and whether to prioritize funding for certain areas, including rural and underserved areas. The Commission also seeks comment on the cost-effectiveness of applicants building or purchasing their own network facilities. In addition, the NPRM addresses changes to the Eligible Services List (“ESL”) including the phasing out of certain outdated services, such as:

Paging and Directory Assistance;

Components of voice services and other services that are not necessary to make broadband service functional, e.g., customer calling features, inside wiring maintenance plans, call blocking, 800 number services, and text messaging;

Services or applications that “ride-over” the network;

Email services (currently included in the definition of Internet Access) and webhosting;

Basic Maintenance of Internal Connections (BMIC); and

Cellular data plans and air cards.

The Commission also seeks comment on whether to permit the use of E-rate funds for services that are only used for school and library staff, administrators or board members, but not students.

In addition to evaluating the cost-effectiveness of funded services, the NPRM also addresses the structure for distribution of funds. Suggestions include: changing the discount system to increase the amount of funds that an applicant must provide; providing support on a district-wide basis, i.e. requiring schools within a district to apply by district and to use the average discount rate, rather than weighting by building; using a per-student or per-building cap on funding in the discount system; eliminating the distinction between Priority One and Priority Two services; and eliminating the discount system altogether and allocating funds to schools using a fixed budget that depends on the chosen services.

Lastly, with regard to affordable access to broadband support, the Commission seeks comment on steps that the Commission can take to encourage public-private partnership opportunities to promote E-rate goals and whether the Commission should consider a temporary or permanent increase to the cap on E-rate funding to achieve its new goals.

Cost-Effectiveness of E-rate Funds

The second goal is to maximize the cost-effectiveness of E-rate funds. As an initial query, the Commission seeks comment on what performance measures it should adopt to maximize the cost-effectiveness of using E-rate funds. Moreover, the NPRM seeks comment on whether performance measures should be applied on a cost per-student basis or on the cost of products and services compared with the equivalent offerings in the marketplace.

To implement the second goal, the Commission seeks comment on a number of ways to increase cost-effective purchasing by E-rate applicants, including ways to: incent or better utilize group purchasing through the creation of consortia; encourage bulk-buying; increase the transparency of pricing for E-rate services, such as making responses to E-rate bids public, or alternatively making public the prices that applicants pay through release of an Item 21 Attachment (the Item 21 Attachment to the Form 471 lists details on the products/services requested); lessen single or no bid contracts; and make certain that specific contracts are cost-effective, e.g. by establishing a formula for determining the most cost-effective way of purchasing services and/or equipment or establishing guidelines or limits based on “reasonable per-classroom, per-teacher, or per-library technology needs.”

Streamlining Administration of the E-rate Program

The third goal in the NPRM is to streamline administration of the E-rate program. The goal aims to streamline and simplify the application, review, commitment and disbursement processes in order to make the best use of E-rate funding and speed up the delivery of support for high-capacity broadband while ensuring appropriate oversight to protect against waste, fraud and abuse.

As an initial matter, the Commission seeks suggestions for performance measures for streamlining administration of the program. In addition, the Commission seeks comment on whether to establish targets for USAC for commitments, disbursements and appeals and whether the Commission should set goals for funding commitments as opposed to tracking actual disbursements.

The Commission notes in the NPRM that applicants are required to complete about six different forms over the course of a funding year and must spend hours fulfilling the requirements necessary for seeking and obtaining funding. Moreover, many applicants feel the need to hire consultants to navigate the funding process and end up having to pay consultant fees that are not reimbursable through E-rate funds, resulting in additional cost to the applicant. In addition, the E-rate process itself is often fraught with delay which may cause applicants to make purchasing decisions without knowing the status of their E-rate funding

To remedy the above concerns, the Commission proposes a number of options for streamlining the administration of the E-rate program. These options include: requiring electronic filing of all form and correspondence with USAC; increasing transparency of the process by making all forms and correspondence with USAC available for an applicant to view for current and prior years; making additional information available regarding the status of an application while it is under review; issuing deadlines to USAC for completing funding decisions or other tasks; focusing the ESL on services provided rather than the regulatory classification of services; only requiring the filing of a single Form 471 for multi-year contracts; establishing two separate filing windows for Priority One and Priority Two funding requests; and streamlining the appeals process, e.g., by reducing the number of opportunities that applicants have to appeal a decision.

Additional Issues

In addition to the three goals, the Commission is using the NPRM as a way to seek comment on additional issues that applicants and service providers have raised in recent years. These include the following.

Children’s Internet Protection Act (“CIPA”) - The NPRM seeks comment on whether non-E-rate applicant owned devices brought into a school or library should be subject to CIPA and whether applicant-owned devices used off-premises should be subject to CIPA requirements.

Rural Schools and Libraries - The Commission seeks comment on changing the definition of “rural” to use either local code designations or Census data.

National School Lunch Program - Currently, discount eligibility is based upon a percentage of students in the National School Lunch Program. The Commission seeks comment on how it should make changes to its eligibility calculations now that many schools participate in a new reimbursement mechanism called the Community Eligibility Option (“CEO”).

New Document Retention Policy - The Commission seeks comment on extending the document retention requirement from five to ten years. Moreover, the Commission is considering whether applicants should be required to submit competitive bidding documents with the Form 471 such as the bid selection sheet.

Certification Requirements – The Commission is evaluating its certification process and seeks comment on: whether the Commission should require that an officer of a service provider sign certain forms submitted to USAC, such as the Form 472; whether requiring an “authorized person” to sign certain forms is sufficient to ensure that they have proper knowledge of E-rate matters; and whether additional certifications should be required, such as that the service provider complied with the lowest corresponding price rule (requiring providers to not charge a price above the lowest corresponding price for services with certain exceptions) and that state and local laws were abided.

Wireless Hotspots – The Commission seeks comments on whether students and the general public should be permitted to receive E-rate funded Internet access offsite through wireless hotspots and whether changes to the program should be made to accommodate use of wireless hotspots offsite.

National Emergencies – In light of recent national emergencies, the Commission seeks comment of the types of procedures the Commission should put in place for applicants affected by national emergencies and the rules and policies that should govern when applicants are faced with a national emergency.

Conclusion

The comprehensive nature of this NPRM presents a rare opportunity for both service providers and applicants to comment on nearly every aspect of the current E-rate program from access to administration. With the potential for significant changes to the program, interested parties should consider how any such changes might impact their future involvement in the E-rate program.

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